why you should. take. the way or.

the kaiser report imax kaiser i told you to get out of. get out of. and out of. wall street are agreeing with you. yeah the bond apocalypse which is by the way a term that i now claim ownership. u.b.s.

tells clients to get ready for the bond pocalypse u.b.s. is planning a mass mailing to many of its brokerage clients alerting them that they have been reclassified as aggressive investors following a recent change in its market outlook that some people inside the firm say reflects a growing bearishness in the bond market particularly over the long term so max yeah why are they reclassifying clients as aggressive if you were a client or if you were the broker sending out this letter what is going on here right well when you open an account at a brokerage firm per the laws of going back to thirty three and thirty four the know your customer rules you have to fill out what the profile of the customer is whether they're conservative whether they're aggressive and typically if they are conservative then they would migrate over to the bond market which are perceived to be conservative investments however now that you've had round after round of quantitative easing and you create this enormous bond bubble here in the u.k.

and in the united states and around the world the sovereign bond bubble u.b.s. knows that the bond apocalypse is upon us that bond prices like in one thousand nine hundred four will drop not just twenty five percent but fifty sixty seventy percent so they're preemptively going in and they're reclassified all their customers who have checked conservative bond investor they've just without really having a discussion with those because they should be telling those customers get out of bonds but instead they're just changing the classification of those customers from conservative to high risk so that when the bonds collapse as they most certainly will then they can claim well the customers indicated they were for risky investments so to practically making a legal maneuver ahead of the lawsuits that are coming their way because they put them into bonds knowingly that they will collapse it's amazing that the bank is is treating their customers again this is another misselling. scandal this isn't the

song scandal twenty four tinct this is the p.p.i. scandal twenty fourteen this is the you know i'm in the scandal of this year. the interest rate swaps scandal of twenty four this is a huge scandal we're seeing the birth of a massive scandal right now u.b.s. a crooked bank in a crooked country with crooked bankers demitted crooked fraud once again so i want to look to this headline here on the telegraph banking system must be re set says born and in it he says he claims he's going to electrify the fence dividing the retail banking part of these big banks from the riskier investment banking side and the article says this means that if banks are judged by the new prudential regulation authority to be trying to flout the rules the government will have the power to order

a complete break up of the bank so it says now the government will have the power to break up these banks they've had the power for years they've had the power to incarcerate all these misselling scandal they have the ability to incarcerate all the bankers involved in libel but they don't do it doesn't mean that if you hand them another power to break up the banks because they're. not separating investment from retail banking then are they going to use it max well i mean is george osborne lying i mean that's the question is he just lying bald faced lies you telling the british people i am george osborne i'm a despicable liar. i tell you that i'm going to prosecute bankers never prosecuted bankers and the bankers have their hands in my pockets i'm completely conflicted i take bribes i'm a liar my name is george osborne i lie i'm a liar my name is george osborne and i lie i'm a liar my name is george osborne and i lie but let's look at how when they have the

authority when the government already has the authority to deal with hard core criminal behavior and what they choose to do right now the same day he alleges that he might dissolve a bank if they merge if they overlap their investment banking retail banking side yet another banking scandal banks face huge campobello for misselling to businesses more than ninety percent interest rate swaps involved misselling and this new scandal may have already cost hundreds of thousands of jobs as they're referring to a report from the financial services authority and this is what they say january thirty first banks could be clobbered with a gigantic eighteen billion pounds for stitching up customers yet again it was revealed today fat cats were left reeling after a reported now said thousands of struggling businesses have been mis sold complicated financial products that ended up costing them huge amounts of money that again is january thirty first they say the banks could face eighteen billion

pounds cut to. two days later misselling scandal thanks let off the hook so the bank george osborne is going to cap their payouts at one point five billion pounds for the interest rate swap misselling and again the financial services authority found ninety percent of the small businesses were missiles these interest rate swaps well yes but let's unpack this scam here the credit default swap insurance sold to protect against rising interest rates without communicating to customers that they were exposed to lower interest rates these were sold in the hundreds of millions of pounds worth then the central bank along with the library scandal for example the library scandal manipulated interest rates for the most part down knowing full full well that it would trigger a huge multi hundred billion pound losses to these small companies would then have to lay people off people or are without jobs because it have to pay the banks or

extortion money i mention u.b.s. i mention extortion i mention r.b.s. lloyds barclays it just b. c. they're in the jobs of extortion they used financial guns they put it to people said they say give us your money or we're going to blow your. money my best your job or impression ok in case people are aware of it he's a liar he lies to you he steals your money and you keep him in office you are sure scorched earth starts. well until the bond pocalypse happens nothing will happen on that regard so let's move on to another scandal that's happened this week another scandal for which george osborne for which timothy geitner the ben bernanke. mervyn king they all have the authority to stop this and to punish and to put these people out of business. long ago for hard core crimes not just for this

comingling of the retail and investment sector libeler banks should consider global deal with victims this is from bloomberg here's their graphic to go with it so he the more we learn about the manipulation of the london interbank offered rate the more expensive the scandal becomes for the financial institutions of alt so what they're saying is they've looked at all the emails and it's quite clear that there was a conspiracy systemic conspiracy institutionalized conspiracy from top to bottom bottom to top the entire system was engaged in this fraud he says in thousands of incidents throughout much of the two thousands traders sought to manipulate live or another benchmark interest rates that influenced the value of hundreds of trillions of dollars in loans bonds and derivatives judging from the traders communications they often succeeded and profited handsomely and then they

say again this is institutional it seemed to be an institutional thing so again i ask not just george osborne we know he's a liar but what about david cameron what about tony blair what about gordon brown what about mervyn king what about ben bernanke what about timothy geithner what about hank paulson what about the f.e.c. f.s.a. what about the f.c.c. what about the commodities futures trading commission what about all these other regulatory bodies that oversee these. all have authority to put these guys out of business what about them why didn't they do it mark carney the incoming bank of england governor he's brought in to basically whitewash everything for a few months before the bond pocalypse hits and everything starts to stink really badly again so he's just a whitewash he's just brought into why washy knows mark carney is implicit in record tearing and financial fraud he mark carney is a crook is coming in here to practice this is racketeering but he's going to whitewash the for to give these guys

a breathing room ok so back to the story here because we talked about the bond pocalypse and all the bonds are based on these libel rates all these interest rates watts are based on live or rates every single financial contract in the world is based on these financial these rates so let's look at some of the facts the numbers because a lot of people out there thank you it's not a big deal is not a big problem they but they only read rates by point zero one percent or point one percent and maybe saved me five pounds on my mortgage payment that month while we can expect government settlements with the banks to be costly it's safe to assume that the ensuing civil litigation will be more expensive still if for example payments on three hundred trillion dollars in financial contracts were off by only point one percentage point four year plaintiffs could potentially demand compensation for three hundred billion dollars in losses that's the equivalent of more than four years net income for the sixteen banks involved in setting libel in two thousand and eight so they say that thirty suits have already been filed in federal civil suits have already been filed and in federal court in new york and

here in london they say that lawyers are suggesting that the level of manipulation was so great that contracts tied to libel or should be considered no and void forcing banks to return any related payments such a nuclear option could severely damaged the legal foundation required for the broader financial markets to function so relate this to your bond pocalypse of them to give first of all they'll be given immunity mark carney. give banks immunity from life or prosecution in a few months time you know it's because or it's too systemically important you can't prosecute because it would destroy everything so we're going to give immunity . so we have to we have to look forward to it i mean for every pound that people save on their mortgage from weibo manipulation they lose two pounds in inflation food prices are going up energy prices are going up healthcare you know all these costs are going up inflation real inflation in the u.k. this is what they don't tell you real inflation if you look at stuff the people buy actually the shops is running at six to seven percent a year the government says it's running at zero maybe two percent a year that's another lie down or lies about that the inflation is running it

actually almost eight percent real inflation in this country right now people are getting hammered they're losing a dollar or they're losing a pound in their mortgage they're paying two or three pounds more for stuff at the shops they're being drained of their capital they're being a vis rated this is it's a poll grown and so finally what my thoughts here are that here you have this situation where you know bloomberg is suggesting they all quickly settle for like thirty billion dollars quickly with all the civil litigants that's obviously not going to happen but this is the reality of what george osborne and mark carney face and here they pretend that it's a big deal that the banking system needs a reset and we might put you out of business if you overlap your retail banking with your investment banking legace not to reset it needs a scorched earth burn it all down all right stacy ever thanks so much for being on the kaiser or taking that satan for the second half i'll be speaking with a recovering bond bug john butler.

cold. blooded.

but speak. to. her or her. mum which. looks. like. good luck with. the money and. her. mind i'm a little.

bit. welcome back to the kaiser report imax keyser time now to turn to john butler he's the chief investment officer at them for a capital prior to launching m.

for a john work for deutsche bank and lehman brothers john butler welcome back to the kaiser report thank you max always a pleasure all right now john butler interesting phrase picked up from your book actually that failure pays more than success in this banking industry talk about that a little bit well if you look at the financial crisis and look at how we got into it obviously banks played a central role they took on too much leverage they didn't capitalize themselves enough against the risks they were taking now some of them say they didn't understand the risks they were taking i think these people are a bit too clever and sophisticated to not have understood to a tremendous degree the risks they were taking but isn't it tempting if you don't capitalize your firm sufficiently gets the risks are taking it allows you to pay out more in salaries and bonuses and then if if you do sale to close the wind and you do get taken out by a financial crisis but then you get bailed out when you got paid twice didn't you upfront with the bonuses that you shouldn't have paid out because they didn't

capitalized your institution against the risks and then the bailout itself failure pays better than success that's part of the reason we're in the mess we're in you know this phrase moral hazard is something that people associate or talk in terms of banks when they make bad loans and they're not penalized for making those bad loans there's no reason why they can't continue to make bad loans and we used to have something called the bond vigilantes who would come in and they would sell bonds aggressively and they would force interest rates higher and then this would be you know a way to raise that cost of capital to try to rein in the abuses but now bonds sovereign bonds are bought by the government through quantitative easing corporations by their own bonds by borrowing money at near zero percent interest rates so there is no checks and balances and moral hazard has graduated to something else more extreme. name is not just a quaint little moral hazard it's its failure as the defacto model it they're seeking to fail which is simple isn't that current is not criminality i mean talk

about well again criminality requires a legal definition of criminality but certainly from the perspective of what you know what comprises a healthy financial system a healthy economy and a healthy society which of course should be served by that financial system an economy that has been compromised at the core central bankers have decide or and the bond vigilantes financial markets used to regulate risk taking behavior by pushing up the cost of borrowing when firms were perspire to be taking too much risk that hasn't functioned for years as a result of growing central bank or activism but now the rot goes right to the heart of the system money itself has become a political tool for taking from one group that is the savers prudent people who don't take excessive risks in the economy to those who borrow who do leverage up who do take excessive risks and who keep getting over compensated for it and everyone else's expense right so the regulatory. framework has failed there is no

checks and balances in the market and sell for the bond work all the bond vigilantes they've been neutralized by using the excessively cheap money to keep the bond market inert or in a state of zombification and you have banks that are maryla seeking failure sets up a horrible precedent for society itself because of the loss of not your transmitting there is that failure pays and even if without saying that crime pays you can just say that while it's failure pays and these banks are being compensated to fail now let's talk about the currency market because now currency is really the the underlying you know it's a four to five trillion dollar a day for x. market it's really the biggest market of all and now that currency market seems to be becoming infected and polluted and collapsing as well as part of the currency wars even bill gates has recently made the comment that. he can't see his companies growing because they're hoarding cash because of the currency war so that so what

are you what are your thoughts on how the currency war progresses and how does the u.k. and ireland fare in the currency war well the currency wars have recently reacts or you could say there was a cease fire that has been broken and it was arguably broken by japan late last year when they started saying things that were clearly intended to weaken the yen and the yen subsequently weakened by nearly fifteen percent versus the dollar and it's weakened by actually more against the euro during that timeframe but now south korea has followed along if you look at just what happened a couple weeks back the south korean won suddenly weakened the taiwan dollar suddenly weakened out of nowhere and it's clear that other countries are responding to japan's unilateral attempt to weaken its currency and to grab you know market share as it were for the global export market you know devaluation this is the weapon of the currency war and the printing presses are the weapon of the currency war and threatening to print print print without end is an escalation of the currency war and you know this is kicked off it properly now nationally corporations find this very distressing because if you look at history currency

wars tend to lead to outright trade wars trade tariffs quotas all kinds of surreptitious taxes creeping in around the margin and if you're a complex modern multinational whose operations are highly leveraged and structured to each individual countries advantages and of course the exchange rates and of course the trade policies and regimes guess what happens if all of a sudden these barriers start springing up and efficient multinational becomes an inefficient and profitable disaster if the currency wars morph into trade wars and gates maybe sensing just how dangerous this face is becoming but moving home to the u.k. you know this is a country that devalued very dramatically in two thousand and eight and arguably needed to know this is a financial hub london the u.k. economy is hugely dependent on it when the global financial system face to cry. it was only natural that strolling would get whacked until about twenty five percent in trade weighted terms but even that has not led to has not prevented stagnation

even that has not led to any real recovery in the u.k. u.k.'s failing to recover they're going to need to devalue again they have every excuse now that japan and other countries are also doing it it's only a matter of time and if the current government wants to get reelected they'll probably get on with that to try and create some jobs sooner rather than later so curse you are especially a firing squad lined up in a circle. well it is ultimately a zero sum game so all these guys are shooting at each other and they're all suffering as you point out the u.k. is already had a massive devaluation their export business has been stagnant it hasn't really accomplish this goal of improving exports at all it didn't move the needle in any way now mark carney who's in the u.k. testifying to the treasury select committee as part of his takeover of the bank of england they're talking about something called nominal g.d.p. which based in the context of what's really going on around the world we can interpret his meaning he wants to try to debase the pound some more or absolutely i

mean nominal g.d.p. targeting is just sort of a a a new wants on raising your inflation target because if you're in a weak growth environment where it stood facing a currency well absolutely hasn't worked since two thousand and eight that's been a disaster of policy to bring in a new guy to make it to double down on disaster that's the policy of marconi braman parachute i mean let's double down on the thing that's not working basically right well this is one of the lessons of modern central banking i mean too much is never enough and you print money it doesn't work you print more it doesn't work you print even more where does it all end well it ends in the currency wars which leads to this as you're pointing out your firing squad in a circle zero sum game in fact you could argue it's worse than a zero sum game because the problem is i guess some game it's a negative some say what you will go back to bill gates is point it's a negative sum game because not only can everyone not to. you against everyone else simultaneously it's impossible but in fact you just destroy incentives to invest you destroy whatever certainty remained for a corporation to try and implement

a new technology hire some new workers whatever it might be and as a result your capital stock your global capital stock the all these wonderful machines and systems that you build and make all the stuff that we consume wealth that capital stock is being misallocated and it's simply not being grown so we don't increasing if you look to the future we're entering a extremely weak but prolonged weak growth environment as a result of the trip a complete lack of investment but policymakers are alternately responsible for this not the captains of the corporations me don't get me wrong i mean if one has issues in this i mean you could argue that you know they're part of the problem in certain respects but corporations if they had the right incentives to invest stable monetary policy sensible sustainable government this policy we wouldn't be seeing the investment bust that we're seeing today right but there in the u.k. for example a huge portion of the corporate landscape is dominated by banks and we just described that they are in the business of failing so they're pushing out the

productive real economy huge percentage of the g.d.p. is made up of banks who love it because they're profiting from this failure now of course you mentioned japan firing a shot in the currency wars a big devaluation more to come what has happened let's say to the price of gold in yen terms oh it's gone through the roof i mean the price of gold may have been stable in dollar terms and in recent months it's been trading in a quite narrow range actually but yes relative in yen terms of course it's gone way way up and that's true of other currencies that are preemptively trying to get you know week in and devalue and last year the price of gold against all major currencies went which way it went up up slightly every monday i went. up a gone on well i mean gold's been in a bull market for over a decade right twelve years absolutely and but the governments are putting these balls. season place they saying well we should look at the price of gold even though it's telling us that there is genuine inflation happening in these economies

in the u.k. if you strip out the government office of national statistics vagaries of the lies the real inflation is six seven percent eight percent you can say i think it is higher than most official measures of inflation indeed a lot of these official measures they just can't capture the dynamism of an economy for telling it they don't do that on purpose because as we know in the u.s. they leave out certain elements from their statistical analysis because the government wasn't want to pay attention money that's tied to the official inflation rate so they purposely lowball that inflation number they have a sense of the low ball that number because the government doesn't want to pay out the pensions that are tied to that rate was same thing in the u.k. they do the same kind of statistical refiguring here as well they lie about of the people going to the shops or no they're paying probably now eight percent a year in annual inflation for stuff that they actually are buying including the horsemeat burgers at tesco i mean that's inflation of stealth inflation right there substituting cheap for the expensive you've got

a subway in the footlong sandwiches at eleven inches right that's a stealth inflation it's lation is obviously when we have the good businesses find dynamic ways to pass cost increases on to consumers that are not. inflation statistics economically there is no fundamental difference between the price of a pint of london ale going up by ten percent or shrinking the size of the glass by ten percent there is no economic difference and just really not that they go to the market and gamble the servings are smaller go get all of the cans are smaller absolutely yelling less for the same amount of money but this is no inflation and now there is a risk of hyperinflation because of the currency debasement as part of the circular firing squad driving the lunatics and george osborne over the number eleven downing street there is a risk of it other is a risk of it the problem is policy makers are playing with fire right they want just enough inflation to get themselves out of their debt problem but not so much inflation that investors are simply unwilling to hold the currency and all of a sudden start to dump it wholesale and then you lose control the currency

vigilantes still have power even if the bond market vigilantes don't and if the currency village vigilantes really get going then countries like the u.k. that have horribly unbalanced economies that import far more than they export they are going to see their purchasing power of their currencies devalue so dramatically it will reach the man in the street instantaneously and just like in argentina you'll have might even have policy reactions such as blanket caps on food prices which will create shortages there are counterproductive policies as well we're deep into a mess here a crisis of confidence which is linked to the crisis in confidence in money itself and that has been caused by policymakers they're responsible for what is sadly an escalating level of uncertainty in the world that could under certain circumstances morph into something bordering or in fact actual hyperinflation all right john butler thanks so much for being on the kaiser report thank you x. . all right that's going to do it for this edition of the kaiser report with me max

geyser and stacy herbert my guest john butler and for a capital if you'd like to contact us please tweet us a kaiser report or at facebook dot com forward slash ties a report saying. you know sometimes you see a story and it seems so you think you understand it and then you glimpse something else you hear or see some other part of it and realize everything you thought you knew you don't know i'm tom harpur welcome to the big picture. download the official. so choose your language stream quality and

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